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The EURGBP pair reversed sharply from its 200-day moving average last week after staging a promising rally above the 0.8600 level, largely due to the massive losses seen in the British pound on the currency market.
In fact, one of the reasons why we are now seeing EURGBP weakness is due to the fact that sterling is rebounding, and the single currency started to post losses on the foreign exchange market against the US dollar.
The EURGBP being a cross pair had been a major beneficiary of sterling weakness, hence cross flows went into the EURGBP due to large-scale sterling sentiment. Now the axis has shifted, and EURUSD selling is prompting a bout of EURGBP weakness.
Technically, the EURGBP is at a critical juncture as the pair has staged a classic 50 percent correction from the yearly low to high. It is sink or swim time for the EURGBP pair after last week’s major breakout.
The technical clearly show that failure to bounce from current levels is likely to sink the EURGBP pair back towards the 0.8500 handle. Price pattern analysis highlights that a large triangle pattern has formed, which strong indicates of a coming breakout.
Interesting the Bollinger Band indicator on the weekly time frame is also suggesting a major breakout is coming for the EURGBP pair, as the bands are now at their tightest since mid-2018.
The ActivTrader platform shows that bullish sentiment is starting to rise, with some 78 percent of traders still expecting more upside in the EURGBP pair. One-way sentiment skews are rarely correct, so the current bullish is slightly worrying.
EURGBP Short-term Technical Analysis
The four-hour time frame shows that the EURGBP pair is technically bullish over the short-term while the price trades above the 0.8560 level according to the 200-period moving average.
Lower time frame analysis currently shows the EURGBP pair testing back towards a key trendline breakout from a large triangle. A move under the 0.8530 level would be a disaster for the EURGBP pair and could prompt huge losses.
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EURGBP Medium-term Technical Analysis
The daily time frame shows that the EURGBP pair has tested towards its key 200-day moving average and suffered a large technical rejection upon its first attempt from a large falling price channel.
Failure to crack the top of the pattern this week could see a big drop-off towards the bottom of the channel. These types of channel patterns are typically bullish reversal patterns.
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